India's recent free trade agreements with the European Union and a framework deal with the United States have sparked a turnaround in foreign investment flows, as highlighted in the Reserve Bank of India's February 2026 bulletin.

The bulletin credits these pacts for reversing $5.8 billion in net foreign portfolio outflows recorded between April 2025 and early February 2026, with inflows resuming strongly in equities and debt during February. It notes a shift in investor sentiment, driven by improved market access, enhanced export competitiveness, and deeper integration into global value chains.

The Indian rupee, after depreciating 2.3% in January to an all-time low of 92.29 against the dollar, recovered 1.1% that month amid the positive trade outlook.

Trade Deals Overview

Negotiations for the India-EU free trade agreement concluded on January 27, 2026, forming a free trade zone spanning two billion people, with tariffs slashed on over 96% of EU exports to India and more than 90% of Indian goods to the EU. European Commission President Ursula von der Leyen called it the "mother of all deals.

"On February 2, India and the US finalized an interim framework reducing tariffs on Indian goods from 50% to 18%, followed by a February 6 executive order eliminating a 25% duty linked to Russian oil imports. India's chief trade negotiator Rajesh Agrawal announced a delegation to Washington to seal the legal details by late March.

Capital Flow Reversal

Foreign portfolio investors injected 19,675 crore rupees into Indian equities in early February, flipping from heavy outflows of 35,962 crore in January, 22,611 crore in December, and 3,765 crore in November. This resurgence aligns with the RBI's observations on renewed confidence post-FTAs.

RBI's Economic Outlook

At its February meeting, the RBI maintained the repo rate at 5.25% after 125 basis points of cuts since early 2025, forecasting 7.4% GDP growth for the fiscal year. Governor Sanjay Malhotra emphasized sustained growth momentum, supported by benign inflation and the trade pacts.

The bulletin praised the Union Budget's fiscal consolidation to a 4.3% GDP deficit target, paired with record 12.2 trillion rupees in capital expenditure, which is set to attract private investment and bolster infrastructure.